Form1

December 15, 2018

FORM 1 – TABLE OF CONTENTS

FORM 1 – GENERAL NOTES AND DEFINITIONS

GENERAL NOTES:

1. Each Member must comply with the requirements in Form 1 as approved and amended from time to time by the board of directors of the Mutual Fund Dealers Association of Canada (the Corporation).

   Form 1 is a special purpose report that includes financial statements and schedules, and is to be prepared in accordance with International Financial Reporting Standards (IFRS), except as prescribed by the Corporation. Each Member must complete and file all of these statements and schedules.

2. The following are Form 1 IFRS departures as prescribed by the Corporation:

3. The following are Form 1 prescribed accounting treatments based on available IFRS alternatives:

4. These statements and schedules should be read in conjunction with the Corporation’s Bylaws, Rules and Policies.

5. For purposes of these statements and schedules, the accounts of related companies that meet the definition of “related Member” in MFDA By-law No. 1 may be consolidated.

6. For purposes of the statements and schedules, the capital calculations must be on a trade date reporting basis unless specified otherwise in the Notes and Instructions to Form 1.

7. Comparative figures on all statements are required only at the audit date. As a transition exemption for the changeover to International Financial Reporting Standards (IFRS) from Canadian Generally Accepted Accounting Principles (CGAAP), Members are not required to file comparative information for the preceding financial year as part of the first audited Form 1 under IFRS.

8. All statements and schedules must be expressed in Canadian dollars and must be rounded to the nearest dollar.

9. Supporting details should be provided, as required, showing a breakdown of any significant amounts that have not been clearly described on the statements and schedules.

10. Mandatory security counts. Securities held in segregation and safekeeping must be counted once in the year in addition to the count as at the year-end audit date.

11. Mandatory reconciliations. Reconciliations must be performed monthly in addition to the year-end audit date between the Member’s records and the records of the depository or custodian where the Member holds its own and client securities in nominee name accounts.

DEFINITIONS:

1. “acceptable entity” means:
   1. Acceptable institutions.
   2. Government of Canada, the Bank of Canada and Provincial Governments.
   3. Insurance companies licensed to do business in Canada or a province thereof.
   4. Canadian provincial capital cities and all other Canadian cities and municipalities, or their equivalents.
   5. All crown corporations, instrumentalities and agencies of the Canadian federal or provincial governments which are government guaranteed as evidenced by a written unconditional irrevocable guarantee or have a call on the consolidated revenue fund of the federal or provincial governments.
   6. Canadian pension funds which are regulated either by the Office of Superintendent of Financial Institutions or a provincial pension commission.
   7. Corporations (other than Regulated Entities) with a minimum net worth of $75 million on the last audited balance sheet, provided acceptable financial information with respect to such corporation is available for inspection.
   8. Members of the Corporation.
   9. Regulated entities.

2. “acceptable institutions” means:
   1. Canadian banks, Quebec savings banks, trust companies licensed to do business in Canada or a province thereof.
   2. Credit and central credit unions and regional caisses populaires.

3. “acceptable securities locations” means those entities considered suitable to hold securities on behalf of a Member, for both inventory and client positions, without capital penalty, given that the locations meet the requirements outlined in the segregation Bylaws, Rules or Policies of the Corporation including, but not limited to, the requirement for a written custody agreement outlining the terms upon which such securities are deposited and including provisions that no use or disposition of the securities shall be made without the prior written consent of the Member and the securities can be delivered to the Member promptly on demand. The Corporation will maintain and regularly update a list of those foreign depositories and clearing agencies that comply with these criteria. The entities are as follows:
   1. Depositories
      1. Canada – CDS Clearing and Depository Services Inc.
      2. United States – Depository Trust Company
   2. Government of Canada, the Bank of Canada and Provincial Governments.
   3. Canadian banks, Quebec savings banks, trust companies and loan companies licensed to do business in Canada or a province thereof.
   4. Credit and central credit unions and regional caisses populaires.
   5. Insurance companies licensed to do business in Canada or a province thereof.
   6. Mutual Funds or their Agents – with respect to security positions maintained as a book entry of securities issued by the mutual fund and for which the mutual fund is unconditionally responsible.
   7. Regulated entities.

4. “regulated entities” means those that are Members covered by the Canadian Investor Protection Fund or Members of recognized exchanges and associations. For the purposes of this definition, recognized exchanges and associations are those that are identified as a “regulated entity” by the Investment Industry Regulatory Organization of Canada.

5. “market value of a security “ means:
   1. For securities, precious metals bullion and commodity futures contracts quoted on an active market, the published price quotation using:
      1. for listed securities, the last bid price of a long security and, correspondingly, the last ask price of a short security, as shown on a consolidated pricing list or exchange quotation sheet as of the close of business on the relevant date or last trading date prior to the relevant date, as the case may be.
      2. for unlisted investment funds, the net asset value provided by the manager of the fund on the relevant date.
      3. for all other unlisted securities (including unlisted debt securities) and precious metals bullion, a value determined as reasonable from published market reports or inter-dealer quotation sheets on the relevant date or last trading day prior to the relevant date, or, in the case of debt securities, based on a reasonable yield rate.
      4. for commodity futures contracts, the settlement price on the relevant date or last trading day prior to the relevant date.
      5. for money market fixed date repurchases (no borrower call feature), the price determined by applying the current yield for the security to the term of maturity from the repurchase date. This will permit calculation of any profit or loss based on the market conditions at the reporting date.
      6. for money market open repurchases (no borrower call feature), the price determined as of the reporting date or the date the commitment first becomes open, whichever is the later. The value is to be determined as in (v) and the commitment price is to be determined in the same manner using the yield stated in the repurchase commitment.
      7. for money market repurchases with borrower call features, the borrower call price.
   2. Where a determination respecting market value is made pursuant to the provisions of 5(a)(i) – (vii), that determination must include any price adjustments considered by the Member to be necessary to accurately reflect the market value.
   3. Where a reliable price for the security, precious metals bullion or commodity futures contract cannot be determined:
      1. the value determined by using a valuation technique that includes inputs other than published price quotations that are observable for the security, either directly or indirectly; or
      2. where no observable market data-related inputs are available, the value determined by using unobservable inputs and assumptions; or
      3. where insufficient recent information is available and/or there is a wide range of possible values and cost represents the best value estimate within that range, cost.
   4. Where a value cannot be reliably determined under subsections 5(a) and 5(c) above, no value shall be reported.

FORM 1 – CERTIFICATE OF PARTNERS OR DIRECTORS

(Member Name)

I/We have examined the attached statements and schedules and certify that, to the best of my/our knowledge, they present fairly the financial position and capital of the Member at and the results of operations for the period then ended, and are in agreement with the books of the Member.

I/We certify that the following information is true and correct to the best of my/our knowledge for the period from the last audit to the date of the attached statements which have been prepared in accordance with the current requirements of the Corporation:

Date:

CERTIFICATE OF PARTNERS OR DIRECTORS
NOTES AND INSTRUCTIONS

1. Details must be given for any “no” answers.

2. To be signed by two of either:
   1. Ultimate Designated Person (UDP)
   2. Chief Executive Officer
   3. Chief Financial Officer
   4. Chief Accountant
   5. One Director or Partner not included in (a), (b), (c) or (d) above.

   Where there is only one individual that meets the qualifications of the positions listed above, this individual must sign the certificate.

3. Two copies with original signatures must be provided to the Corporation.

INDEPENDENT AUDITOR’S REPORT FOR STATEMENTS A, D AND E

To: Mutual Fund Dealers Association of Canada and MFDA Investor Protection Corporation

Opinion

We have audited the Statements of Form 1 of (the Member), which comprise:

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Statements section of our report. We are independent of the Member in accordance with the ethical requirements that are relevant to our audit of the Statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter – Basis of Accounting

We draw attention to Note  to the Statements which describes the basis of accounting.

The Statements are prepared to assist the Member in complying with the financial reporting provisions of the Notes and Instructions to Form 1 prescribed by the Mutual Fund Dealers Association of Canada. As a result, the Statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter.

[Optional wording to either be removed or customized by respective audit firms] Material Uncertainty related to Going Concern

We draw attention to Note in the Statements which indicates that [insert key events and conditions that resulted in the material uncertainty].  As stated in Note  in the Statements, these events and conditions, along with other matters as set forth in Note  in the Statements, indicate that a material uncertainty exists that may cast significant doubt on the Member’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Matter – Unaudited Information

We have not audited the information in Schedule 5 of Part II of Form 1 and accordingly, do not express an opinion on the schedule.

Other Matter – Restriction on Use [Optional wording to either be removed or customized by audit firms]

Our report is intended solely for the Member, the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation and should not be used by parties other than the Member, the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation.

Responsibilities of Management and Those Charged with Governance for the Statements

Management is responsible for the preparation and fair presentation of the Statements in accordance with the financial reporting provisions of the Notes and Instructions to Form 1 prescribed by the Mutual Fund Dealers Association of Canada, and for such internal control as management determines is necessary to enable the preparation of Statements that are free from material misstatement, whether due to fraud or error.

In preparing the Statements, management is responsible for assessing the Member’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Member or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Member’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Statements

Our objectives are to obtain reasonable assurance about whether the Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Member’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Member’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Member to cease to continue as a going concern.
• Evaluate the overall presentation, structure, and content of the Statements, including the disclosures, and whether the Statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

INDEPENDENT AUDITOR’S REPORT FOR STATEMENTS B, C AND F

To: Mutual Fund Dealers Association of Canada and MFDA Investor Protection Corporation

Opinion

We have audited the Statements of Form 1 of (the Member), which comprise:

In our opinion, the accompanying Statement B as at and , Statement C as at and Statement F for the year ended are prepared, in all material respects, in accordance with the financial reporting provisions of the Notes and Instructions to Form 1 prescribed by the Mutual Fund Dealers Association of Canada.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Statements section of our report. We are independent of the Member in accordance with the ethical requirements that are relevant to our audit of the Statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter – Basis of Accounting

We draw attention to Note to the Statements which describes the basis of accounting.

The Statements are prepared to assist the Member in complying with the financial reporting provisions of the Notes and Instructions to Form 1 prescribed by the Mutual Fund Dealers Association of Canada. As a result, the Statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter.

[Optional wording to either be removed or customized by respective audit firms] Material Uncertainty related to Going Concern

We draw attention to Note in the Statements which indicates that [insert key events and conditions that resulted in the material uncertainty].  As stated in Note  in the Statements, these events and conditions, along with other matters as set forth in Note  in the Statements, indicate that a material uncertainty exists that may cast significant doubt on the Member’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Matter – Unaudited Information

We have not audited the information in Schedule 5 of Part II of Form 1 and accordingly, do not express an opinion on the schedule.

Other Matter – Restriction on Use [Optional wording to either be removed or customized by audit firms]

Our report is intended solely for the Member, the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation and should not be used by parties other than the Member, the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation.

Responsibilities of Management and Those Charged with Governance for the Statements

Management is responsible for the preparation of the Statements in accordance with the financial reporting provisions of the Notes and Instructions to Form 1 prescribed by the Mutual Fund Dealers Association of Canada, and for such internal control as management determines is necessary to enable the preparation of Statements that are free from material misstatement, whether due to fraud or error.

In preparing the Statements, management is responsible for assessing the Member’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Member or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Member’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Statements

Our objectives are to obtain reasonable assurance about whether the Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Member’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Member’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Member to cease to continue as a going concern.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

FORM 1 – INDEPENDENT AUDITOR’S REPORTS
NOTES AND INSTRUCTIONS

A measure of uniformity in the form of the auditor’s reports is desirable in order to facilitate identification of circumstances where the underlying conditions are different. Therefore, when auditors are able to express an unqualified opinion, their reports should take the form of the auditor’s reports shown above.

Any limitations in the scope of the audit must be discussed in advance with the Corporation. Discretionary scope limitations will not be accepted. Any emphasis of matter in the auditor’s reports must be discussed in advance with the Corporation.

Two copies with original signatures must be provided to the Corporation.

FORM 1, PART I – STATEMENT A

(Member Name)

STATEMENT OF FINANCIAL POSITION

at

FORM 1, PART I – STATEMENT A
NOTES AND INSTRUCTIONS

Accrual basis of accounting

Members are required to use the accrual basis of accounting.

Allowable assets are those assets which, due to their nature, location or source, are either readily convertible into cash or from such creditworthy entities as to be allowed for capital purposes.

Line 4 – In the case of the salesperson’s portion of gross commissions or fees receivable, as recorded on lines 10 (Other receivables) and 20 (Other assets), to the extent that there is written documentation that the Member does not have a liability to pay the salesperson’s commission until it is received, the salesperson’s portion of the gross commission or fee receivable is an allowable asset.

Line 5 – Include amounts owed to the Member for the sale of nominee name client securities.

Line 8 – Include only overpayment of prior years’ income taxes or current year installments. Taxes recoverable due to current year losses may be included to the extent that they can be carried back and applied against taxes previously paid.

Line 9 – Include GST and HST receivables, capital tax, Part IV tax, sales and property taxes.

Line 11 – Include only to extent receivable from Acceptable Entities (for definition, see General Notes and Definitions) but do not include subordinated loans receivable from other Members which should be shown on line18.

Line 15 – Start-up and organizational costs cannot be capitalized. Examples of intangible assets include goodwill and client lists.

Line 17 – Assets arising from a finance lease (also known as a capitalized lease).

Line 18 – Receivables from related parties which are generated from trading activity can be reported as allowable assets if the criteria for such reporting is otherwise satisfied.

A Member must report non-trading inter-company receivables on a gross basis unless the criteria for netting are met.

Line 19 – Investments in subsidiaries and affiliates must be valued at cost.

Line 20 – Including but not limited to such items as:

• prepaid expenses
• commissions and other receivables from other than acceptable entities
• cash surrender value of life insurance
• advances to employees (gross)
• cash on deposit with non acceptable entities
• provincial contingency/fund deposits

Line 21 – Non-allowable assets mean those assets that do not qualify as allowable assets.

Line 26 – Includes amounts owed by the Member for the purchase of nominee name client securities.

Line 27 – Recognize a liability to cover specific expenditures relating to legal and constructive obligations. A Member cannot hold provisions as a general reserve to be applied against some other unrelated expenditure.

Line 30 – Include discretionary bonuses payable and bonuses payable to shareholders.

Line 32 – Include all other current liabilities excluding those reported on lines 38, 39 and 40.

Line 36 – Include all other non-current liabilities excluding those reported on lines 38, 39 and 40.

Line 40 – Subordinated loans mean approved loans, pursuant to an agreement in writing in a form satisfactory to the Corporation, obtained from a source approved by the Corporation, the payment of which is deferred in favour of other creditors and is subject to regulatory approval.

A Member must not pay a debt owed to any of its creditors contrary to any subordination or other agreement to which it and the Corporation are parties.

Line 44 – Reserve is an amount set aside for future use, expense, loss or claim. It includes an amount appropriated from retained earnings. It also includes accumulated other comprehensive income (OCI).

Line 45 – Retained earnings represent the accumulated balance of income less losses arising from the operation of the business, after taking into account dividends and other direct charges or credits.

FORM 1, PART I – STATEMENT B
NOTES AND INSTRUCTIONS

Capital Adequacy

A MEMBER MUST HAVE AND MAINTAIN AT ALL TIMES RISK ADJUSTED CAPITAL IN AN AMOUNT NOT LESS THAN ZERO.

Line 4 – Due to related parties

For purposes of this capital calculation, all amounts owing to related parties must be reported as a deduction to risk adjusted capital.

Line 6 – Minimum capital

Rule 3.1.1 requires the following minimum capital amounts:

1. Level 1 Member  $ 25,000
2. Level 2 Member  $ 50,000
3. Level 3 Member  $ 75,000
4. Level 4 Member  $ 200,000

Notwithstanding the provisions of Rule 3.1.1, a Member that is registered as an investment fund manager under securities legislation and is a Level 2 or 3 Dealer must maintain minimum capital of at least $100,000.

Line 12 – Securities held at non- acceptable locations

100% of the market value of securities must be provided in the case where client or firm securities are held at locations which do not qualify as acceptable securities locations (see General Notes and Definitions). Securities held by an entity with which the Member has not entered into a written custodial agreement as required by the By-laws and Rules of the Corporation shall be considered as being held at non-acceptable securities locations.

Line 13 – Guarantees

If the Member is guaranteeing the liability of another party, the total amount of the guarantee must be provided for in computing Risk Adjusted Capital.

The Member should maintain and retain the details of the margin calculations for guarantees for review by the Corporation.

Lines 14 and 15 – Unresolved differences

Items are considered unresolved unless a journal entry to resolve the difference has been processed as of the Due Date of the Form 1.

This does not include journal entries writing off the difference to profit or loss in the period subsequent to the date of the Form 1.

Margin must be provided for adverse unresolved differences in nominee name accounts in an amount equal to the market value of the securities short plus the applicable margin rates related to the security. If the deficiency has not been resolved within thirty days of being discovered, the Member shall immediately purchase the securities that are short.

For nominee name accounts, where a mutual fund company or financial institution does not provide a monthly statement or electronic file confirming all of the Member firm’s positions, the Member shall provide margin equal to 100% of the market value of such mutual funds and other investment products held on behalf of clients.

All reconciliations must be properly documented and made available for review by Corporation staff and the Member’s auditor.

Line 16 – Other

This item should include all margin requirements not mentioned above as outlined in the By-laws and Rules of the Corporation.

The early warning system is designed to provide advance warning of a Member encountering financial difficulties. It will anticipate capital shortages and/or liquidity problems and encourage Members to build a capital cushion.

Line 2 – Other allowable assets are deducted from RAC because they are illiquid or the receipt is either out of the firm’s control or contingent.

Line 3 – Non-current liabilities are added back to RAC as they are not current obligations of the firm and can be used as financing.

Comprehensive Income

Comprehensive income represents changes in equity during a period, including profit and loss for the period and other comprehensive income (OCI). OCI captures certain gains and losses outside of net income. For regulatory financial reporting, there are two acceptable sources of other comprehensive income (OCI):

• the use of the revaluation model for property, plant and equipment (PPE) and intangible assets; and
• actuarial gain (loss) on defined benefit pension plans.

PART A. CHANGES IN ISSUED CAPITAL

PART B. CHANGES IN RESERVES

PART C. CHANGES IN RETAINED EARNINGS

FORM 1, PART I – STATEMENT E
NOTES AND INSTRUCTIONS

PART A. Changes in issued capital

Share premium

When the Member sells its shares (initial issuance or from treasury), share premium is the excess amount received by the Member over the par value (or nominal value) of its shares. Share premium cannot be used to pay out dividends.

PART B. Changes in general reserve

General reserve

A Member may want to transfer from retained earnings. The creation of a general reserve gives the Member an added measure of protection.

Reserve – Employee benefits

When a Member has a defined benefit pension plan and initially adopts a policy of recognizing actuarial gains and losses in full in other comprehensive income (OCI), all subsequent adjustments must be recognized as other comprehensive income and will be accumulated in a reserve account.

When a Member has stock option or share awards granted to its employees by issuing new shares, the Member recognizes the fair value of the option or new shares granted as an expense with a corresponding increase in the reserve account.

Reserve – Properties revaluation

When using the revaluation model for certain non-allowable assets (PPE and intangibles), a Member will account for the initial increase in value as other comprehensive income and will accumulate the increase (and subsequent changes) in a revaluation reserve account.

PART C. Changes in retained earnings

Changes in accounting policy and retroactive adjustment of prior year’s retained earnings

A change in accounting policy in the current year requires retroactive adjustment of the prior year’s retained earnings.

The beginning balance of the current period must be the ending balance of the prior period.

FORM 1, PART I – STATEMENT F
NOTES AND INSTRUCTIONS

1. At the annual audit date only, provide an attachment to Statement F showing the amount and the name of the lender for each subordinated loan outstanding.

2. “subordinated loans” means approved loans, pursuant to an agreement in writing in the form prescribed by the Corporation, the payment of which is deferred in favour of other creditors and is subject to regulatory approval.

FORM 1, PART II
REPORT ON COMPLIANCE FOR INSURANCE AND SEGREGATION OF
CASH AND SECURITIES

To: The Mutual Fund Dealers Association of Canada (the Corporation) and the MFDA Investor Protection Corporation

We have performed the following procedures in connection with the regulatory requirements for to maintain minimum insurance and segregate client cash and securities as outlined in the By-laws, Rules, and Policies of the Corporation. Compliance with the Corporation By-laws, Rules, and Policies with respect to insurance and the segregation of client cash and securities is the responsibility of the management of the Member firm. Our responsibility is to perform the procedures requested by you.

1. We have read the Member firm’s written internal control policies and procedures with respect to maintaining insurance coverage and segregation of client cash and securities to determine that such policies and procedures meet the minimum required, as prescribed by the Rules and Policies of the Corporation in regards to establishing and maintaining adequate internal controls.

2. We obtained representation from appropriate senior management of the Member firm that the Member firm’s internal control policies and procedures with respect to insurance and segregation of client cash and securities meet the minimum required, as prescribed by the Policies of the Corporation in regards to establishing and maintaining adequate internal controls and that they have been implemented.

3. We read the Financial Institution Bond Form (the “FIB”) insurance policy(s) to determine that the FIB policy(s) includes the minimum required clauses and coverage limits as prescribed in the By-laws, Rules and Policies of the Corporation.

4. We requested and obtained confirmation from the Member firm’s Insurance Broker(s) as at as to the FIB coverage maintained with the Insurance Underwriter(s) including:
   1. clauses

                                                                                 

   2. aggregate and single loss limits

                                       

   3. deductible amounts

    

   4. name of insurer and insured

    

   5. claims made on the policy since last audit

    

   6. details of losses/claims outstanding

    

5. We traced the total client cash and securities held by the Member to the Member’s books and records as at the audit date to check that the compilation of the total client cash and securities held by the Member is in accordance with the Notes and Instructions to Schedule 4 of Form 1.

6. We obtained a listing of all securities segregation locations used by the Member firm and determined that each location met the definition of “Acceptable Securities Locations” as defined in the General Notes and Definitions to Form 1.

7. We obtained a listing of all cash segregation locations used by the Member firm and determined that each location met the definition of “Acceptable Institutions” as defined in the General Notes and Definitions of Form 1 and that each account was designated as “in trust” and was interest bearing.

These procedures do not constitute an audit and therefore we express no opinion on the adequacy of the Member firm’s insurance coverage, segregation of client cash and securities, or its internal control policies and procedures.

This report is for use solely by the Corporation and the MFDA Investor Protection Corporation to assist in their assessment of the Member firm’s compliance with the requirements regarding maintaining minimum insurance and segregating client cash and securities as outlined in the Bylaws, Rules and Policies of the Corporation and not for any other purpose.

FORM 1, PART II – SCHEDULE 1

DATE:

(Member Name)

ANALYSIS OF SECURITIES OWNED AND SOLD SHORT AT MARKET VALUE

FORM 1, PART II – SCHEDULE 1
NOTES AND INSTRUCTIONS

1. All securities are to be valued at market (see General Notes and Definitions) as of the reporting date. The margin rates to be used are those outlined below:
   1. Bonds, Debentures, Treasury Bills and Notes
      1. Bonds, debentures, treasury bills and other securities of or guaranteed by the Government of Canada, of the United Kingdom, of the United States of America and of any other national foreign government (provided such foreign government securities are currently rated Aaa or AAA by Moody’s Investors Services Inc. or Standard & Poor’s Corporation, respectively), maturing (or called for redemption):
         1. within 1 year – 1% of market value multiplied by the fraction determined by dividing the number of days to maturity by 365
         2. over 1 year – 5% of market value
      2. Bonds, debentures, treasury bills and other securities of or guaranteed by any province of Canada and obligations of the International Bank for Reconstruction and Development, maturing (or called for redemption):
         1. within 1 year – 2% of market value multiplied by the fraction determined by dividing the number of days to maturity by 365
         2. over 1 year – 5% of market value
      3. Bonds, debentures or notes (not in default) of or guaranteed by any municipal corporation in Canada or the United Kingdom maturing:
         1. within 1 year – 3% of market value multiplied by the fraction determined by dividing the number of days to maturity by 365
         2. over 1 year – 5% of market value
      4. Other non-commercial bonds and debentures (not in default):
         1. 10% of market value
      5. All other bonds, debentures and notes (not in default):
         1. within 1 year – 3% of market value multiplied by the fraction determined by dividing the number of days to maturity by 365
         2. over 1 year – 10% of market value
   2. Bank Paper
      Deposit certificates, promissory notes or debentures issued by a Canadian chartered bank (and of Canadian chartered bank acceptances) maturing:
      1. within 1 year – 2% of market value multiplied by the fraction determined by dividing the number of days to maturity by 365
      2. over 1 year – 10% of market value
   3. Mutual Funds
      Securities of mutual funds qualified by prospectus for sale in any province of Canada shall be margined at the following rates:
      1. Money Market Funds (as defined in NI81-102) – 5% of market value.
      2. All Other Mutual Funds – 50% of market value.
   4. Stocks
      On securities (other than bonds and debentures) including rights and warrants listed on any recognized stock exchange in Canada or the United States:
      1. Long Positions – Margin Required
      2. Securities selling at $2.00 or more – 50% of market value
      3. Securities selling at $1.75 to $1.99 – 60% of market value
      4. Securities selling at $1.50 to $1.74 – 80% of market value
      5. Securities selling under $1.50 – 100% of market value
      6. Short Positions – Credit Required
      7. Securities selling at $2.00 or more – 150% of market value
      8. Securities selling at $1.50 to $1.99 – $3.00 per share
      9. Securities selling at $0.25 to $1.49 – 200% of market value
      10. Securities selling at less than $0.25 – market value plus $0.25 per share
   5. FOR ALL OTHER SECURITIES – 100%.

2. Schedule 1 summarizes all securities owned and sold short by the categories indicated. Details that must be included for each category are total long market value, total short market value and total margin required as indicated.

3. The Examiners and/or Auditors of the Corporation may request additional details of securities owned or sold short as they, in their discretion, believe necessary.

Line 1 – Money market shall include Canadian & US Treasury Bills, Bankers Acceptances, Bank paper (Domestic & Foreign), Municipal and Commercial Paper or other similar instruments.

FORM 1, PART II – SCHEDULE 2

DATE:

SUPPLEMENTARY DISCLOSURE:

NAME OF RRSP TRUSTEE(S)

FORM 1, PART II – SCHEDULE 2
NOTES AND INSTRUCTIONS

1. Rule 3.2.1 prohibits Members from lending or extending credit to a client unless the Member is in compliance with Rule 3.2.3 which provides for the advancement of redemption proceeds.

Supplementary Disclosure:

The name of the RRSP trustee(s) used by the Member must be provided. The RRSP or other similar balances held at a trustee must be insured by the Canada Deposit Insurance Corporation (CDIC) or Quebec Deposit Insurance Corporation (QDIC).

FORM 1, PART II – SCHEDULE 3

DATE:

(Member Name)

CURRENT INCOME TAXES

FORM 1, PART II – SCHEDULE 4

DATE:

PART A. Financial Institution Bond (FIB) Clauses (a) to (e)

PART B. REGISTERED MAIL INSURANCE

PART C. FIB and registered mail policy information [Note 8]

PART D. Losses and claims [Note 9]

FORM 1, PART II – SCHEDULE 4
NOTES AND INSTRUCTIONS

1. Member firms must maintain minimum insurance in type and amounts as outlined in the By-laws, Rules and Policies of the Corporation.

2. Schedule 4 must be completed at the audit date.

3. The amounts of insurance required to be maintained by a Member firm shall as a minimum be by way of a Financial Institution Bond with a double aggregate limit or a provision for full reinstatement.

   For Financial Institution Bond policies containing an “aggregate limit” coverage, the actual coverage maintained should be reduced by the amount of reported loss claims, if any, during the policy period.

   Cash and securities held by a Member in its capacity as agent for the trustee must be included in the determination of total client cash and securities held by the Member.

4. The Certificate of Partners or Directors contains a question pertaining to the adequacy of insurance coverage. The Auditors’ Report requires the auditor to state that the question has been fairly answered. The Corporation Rules also state: “Should there be insufficient coverage, firms shall be deemed to be complying with this Rule 4 provided that any such deficiency does not exceed 10% of the insurance requirement and that evidence is furnished within two months of the dates of completion of the monthly operations questionnaire and annual audit that the deficiency has been corrected. If the deficiency is 10% or more of the insurance requirement, action must be taken by the Member to correct the deficiency within 10 days of its determination and the Member shall immediately notify the Corporation.”

5. A Financial Institution Bond maintained pursuant to the MFDA Rules may contain a clause or rider stating that all claims made under the bond are subject to a deductible, provided that the firm’s margin requirement is increased by the amount of the deductible.

6. Every Member firm shall effect and keep in force Mail Insurance against loss arising by reason of any outgoing shipments of money, securities, or other property negotiable or non-negotiable, by first-class mail, registered mail, registered air mail, express or air express, such insurance to provide at least 100% coverage.

7. The aggregate value of securities in transit in the custody of any employee or any person acting as a messenger shall not at any time exceed the coverage per the Financial Institution Bond (Schedule 4, line 2).

8. List all Financial Institution Bond and Registered Mail underwriters, policies, coverage and premiums indicating their expiry dates. State type of aggregate limits, if applicable, or note that provision for full reinstatement exists.

9. List all losses reported to the insurers or their authorized representatives including those losses that are less than the amount of the deductible. Do not include lost document bond claims. Indicate in the “Amount of Loss” column if the amount of the loss is estimated or unknown as at the reporting date.

   Losses should continue to be reported on Schedule 4 Part D until resolved. In the reporting period where a claim has been settled or a decision has been made not to pursue a claim, the loss should be listed along with the amount of the settlement, if any.

   At the annual audit date, list all unsettled claims, whether or not the claims were initiated in the period under audit. In addition, list all losses and claims identified in the current or previous periods that have been settled during the period under audit.

FORM 1, PART II – SCHEDULE 5

DATE:

FORM 1, PART II – SCHEDULE 5
NOTES AND INSTRUCTIONS

1. The objective of the various Early Warning Tests is to measure characteristics likely to identify a firm heading into financial trouble and to impose restrictions and sanctions to reduce further financial deterioration and prevent a subsequent capital deficiency. “Yes” answers indicate Early Warning has been triggered.

2. The profit or loss figures to be used are before asset revaluation income and expense, bonuses, and income tax expense [Statement D, line 22 – Profit (loss) for Early Warning test]. Note that the “current quarter” figure must also reflect any audit adjustments made subsequent to the filing of the monthly FQR.

3. If the current quarter is profitable, enter a “No” answer for Part C.

FORM 1, PART II – SCHEDULE 6

DATE:

(Member Name)

OTHER SUPPLEMENTARY INFORMATION

FORM 1, PART II – SCHEDULE 6
NOTES AND INSTRUCTIONS

1. For individuals licensed in Quebec and also licensed in any other province, report on (b).

2. Assets under Administration means the market value of all mutual funds reflected in the client accounts (nominee and client name) of a Member in all provinces of Canada, excluding Quebec.